Inflation is getting worse, and the American people, businesses and the White House are all paying attention to the performance of CPI data. The CPI in March was 8.5%, and the CPI in April was 8.3%. The market originally thought that the high inflation problem in the United State

Inflation is getting more intense, and the American people, businesses and the White House are all paying attention to the performance of CPI data. The CPI in March was 8.5%, and the CPI in April was 8.3%. The market originally thought that the high inflation problem in the United States had reached an inflection point, but unexpectedly, the CPI shot up again in May, reaching 8.6%, the highest value since 1981, making the "inflection point theory" a reality. "Total bankruptcy.

Looking at the sub-items, the average price of food increased by 10.1%, the average price of energy increased by 34.6%, and the price growth rate of prices other than food and energy was 6%. This data is also called core CPI. The standard line for moderate inflation is 2%, so whether looking at CPI-U or core inflation data, the United States is in a state of hyperinflation.

Logically speaking, the source of hyperinflation comes from the uncontrolled interest rate cuts and massive asset purchases by the Federal Reserve in 2020 in response to the sudden COVID-19 epidemic. After the impact of the epidemic subsided, the excess dollars flooding the market caused a bubble to appear. Therefore, the American people and the White House are particularly dissatisfied with Fed Chairman Powell, believing that he has single-handedly created high inflation. Considering that when the U.S. CPI began to show signs of rising last year, Powell was blindly confident, continued inaction, and suffered serious dereliction of duty, the above dissatisfaction is reasonable.

However, we would like to remind investors that the high inflation in the United States may not be caused by the proliferation of US dollars. An obvious feature is that the US dollar index is in the high range since 2003, with the market price around 105. If the market is flooded with U.S. dollars, then the U.S. dollar index cannot remain at such a high level and should maintain a depreciation trend.

Food and energy:

The surge in food and energy is the root cause of hyperinflation in the United States, not the Federal Reserve's monetary policy. The core CPI can exclude the two categories of current food and energy prices, but it cannot exclude the price transmission effect of these two categories on other categories after price increases. Rising prices for clothing, housing, used cars, new cars, etc. are all related to rising food prices and transportation costs (which rely on energy).

The emergence of the U.S. CPI turning point does not depend on whether the Federal Reserve raises interest rates or not, but depends on when the Russia-Ukraine conflict ends, when OPEC + over-expands production, and when the food crisis is lifted. For these three factors, we have not observed any significant signs of change. We predict that the CPI data in June will rise further, and by the end of this year, the CPI may reach a high of 9%.

Gold and US stocks :

Gold has the effect of avoiding inflation risks, so on the day when the US CPI data was released, the price of gold rose from a low of 1826 to 1879, an increase of 2.9%. However, the Federal Reserve's radical interest rate hike will pose a serious obstacle to the rise in gold prices. In the long run, gold is more likely to continue to fluctuate. U.S. stocks are also more sensitive to CPI data. On the day the data was released, the Nasdaq 100 index fell 2.74%. The latest market price was near the lowest point of the month. It is very likely to hit a new low for the month this week. In addition, the yield on the U.S. ten-year Treasury bond reached 3.227%, setting a new high. This means that the Fed’s final target for raising interest rates has risen again. Tight monetary policy will lead to an increase in corporate financing costs, which increases the possibility of listed companies defaulting on their debt.

Nasdaq 100 index analysis chart

▋Summary: The U.S. dollar index has risen for four consecutive days and is expected to break through the high of 105.3 this week. This will put pressure on all non-US currencies, especially the euro and the pound. However, WTI, the culprit of hyperinflation in the United States, is still in a bullish trend, with limited declines today. This also proves what we said earlier: the Fed's interest rate hike is not the decisive factor in the turning point of CPI data.

Risk warning and disclaimer: The market is risky, so investment needs to be cautious. The above content only represents the views of analysts and does not constitute any operational advice.